United States: Effective Date For FINRA Rule 4210 Margin Amendments Approaches

Authored by Nikiforos Mathews and Jonas Robison.

Beginning on December 15, 2017, amendments approved by the Securities and Exchange Commission ("SEC") last year to FINRA Rule 42101 will require U.S. registered broker-dealers to collect (but not post) daily variation margin and, in some cases, initial margin, from their customers on specified transactions.2

These new margin requirements apply to "Covered Agency Transactions," which include: (i) "to-be-announced" (or "TBA") transactions3 on mortgage-backed securities ("MBS") and specified pool transactions4 for which the settlement date is more than one business day after the trade date; and (ii) U.S. agency collateralized mortgage obligations for which the settlement date is more than three business days after the trade date.5 TBA transactions account for the vast majority of trading in the sizable agency MBS market.6

Full variation (or "mark-to-market") margin is required daily from each separate counterparty, without any "threshold" or similar level of uncollateralized exposure. Positions in the same account may be netted to arrive at a single amount of variation margin to be transferred. Margin transfers may be subject to a minimum transfer amount of no more than $250,000.

Initial (or "maintenance") margin is also required in an amount equal to two percent (2%) of the contract value of each net long or short position, by CUSIP, of a customer. However, initial margin is not required from "exempt accounts", which generally include the following:

  1. an account of a registered broker-dealer;
  2. a "designated account", which is defined to include the account of a bank, savings association, insurance company, registered investment company, state or political subdivisions thereof, and pension or profit-sharing plan either subject to ERISA or of an agency of the United States or of a state or political subdivision thereof; and
  3. an account of any person that has a net worth of at least $40 million and financial assets of at least $45 million and either:
    • satisfies certain specified Securities Exchange Act-related reporting requirements; or
    • makes available to the broker-dealer such current information regarding its ownership, business, operations and financial condition as reasonably believed by the broker-dealer to be accurate and sufficient for purposes of performing a risk analysis in respect of such person.

In addition, initial margin is not required from non-exempt accounts with respect to a transaction if, generally: (i) the original contractual settlement for the transaction is in the month of the trade date or in the month succeeding the trade date; and (ii) the customer (x) regularly settles7 such transactions on a delivery-for-payment ("DVP") basis or for cash and (y) does not engage in "dollar-rolls,"8 "round robin"9 trades or other financing techniques for its Covered Agency Transactions.

If an initial or variation margin requirement is not satisfied by the close of business on the business day immediately following the business day on which the margin deficiency arose, then the broker-dealer must deduct the unsatisfied amount from its regulatory net capital, as provided in Rule 15c3-1 of the Securities Exchange Act. Moreover, if an initial or variation margin requirement remains unsatisfied five business days after the date the deficiency arose, then the broker-dealer must promptly liquidate positions to satisfy the deficiency, absent an extension of time granted by FINRA.

The new margin requirements (both initial and variation) do not apply to: (i) transactions that are cleared through a registered clearing agency10 and that are subject to the margin rules of that clearing agency; or (ii) transactions with any customer that has a gross open position in Covered Agency Transactions with a broker-dealer of $10 million or less if, generally (x) the original contractual settlement for all such transaction is in the month of the trade date or in the month succeeding the trade date, (y) such customer regularly settles such transactions on a DVP basis or for cash and (z) such customer does not engage in dollar-rolls, round robin trades or other financing techniques for its Covered Agency Transactions.

Many market participants currently do not exchange margin on Covered Agency Transactions, which are typically documented under Master Securities Forward Transaction Agreements (known as "MSFTAs"). Therefore, a compliant margin annex may need to be negotiated for existing MSFTAs (or an entirely new MSFTAs with a compliant margin annex may need to be negotiated where currently there is no such master agreement) in connection with Covered Agency Transactions between U.S. registered broker dealers and their customers.11 In addition, market participants should keep in mind that triparty control agreements with custodians also may be necessary where customers are registered investment companies.


1.SEC Release No. 34-78081 (June 15, 2016), available here. These amendment are generally intended to implement recommendations from 2012 of the Treasury Markets Practices Group.

2.Amended Rule 4210 also generally required a designated credit risk officer or committee of a U.S. registered broker-dealer to determine in writing and enforce, in accordance with the broker-dealer's written risk policies and procedures, a risk limit for each customer to Covered Agency Transactions by December 2016. In the case of registered investment advisors, broker-dealers were permitted to set these risk limits at the level of the advisor, as opposed to the level of each advisory client. Nevertheless, FINRA has noted that it "expects [broker-dealers] to exercise appropriate diligence in understanding the extent of their risk and to craft their risk limit determination accordingly" in making risk determinations as to advisory accounts. SR-FINRA-2015-036, Partial Amendment No. 3, at 13 (filed May 26, 2016).

3.The TBA market facilitates the forward trading of MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae. See SIFMA TBA Market Fact Sheet, at 1, available here (the "SIFMA Fact Sheet"). In a TBA trade, the parties agree on six parameters of the securities to be delivered (issuer, maturity, coupon, price, par amount and settlement date), but the actual identity of the securities to be delivered at settlement is not specified. See James Vickery and Joshua Wright, TBA Trading and Liquidity in the Agency MBS Market, Federal Reserve Bank of New York, Staff Report no. 468 (August 2010) ("Staff Report"), at 7. TBA trades generally settle within three months of the trade date and, to facilitate logistics for settlement, the market sets a single settlement date for each month for each of several types of trades. Id. at 8. Consistent with industry practice, the seller notifies the buyer of the details of the pool to be delivered two business days before the settlement date (this is known as the "48 hour rule"). See generally SIFMA, Uniform Practice Manual, located here.

4.In specified pool trades, the actual identity of the pool to be delivered is specified on the trade date.

5.Note, however, that U.S. registered broker-dealers are not required to apply the margin requirements with respect to Covered Agency Transactions with a customer that involve multifamily housing securities or project loan program securities and satisfy specified criteria.

6.Staff Report, at 2. In June 2015, an average of $184 billion of agency MBS was traded each day by primary dealers. SIFMA Fact Sheet, at 1. This volume dwarfs the size of the corporate bond and municipal markets, and is second only to the U.S. Treasury market. Id.

7.The term "regularly settles" is intended to provide broker-dealers with flexibility as to how they implement the requirement. FINRA Regulatory Notice 16-31, at n. 18 (August 2016). FINRA expects that broker-dealers are "in a position to make reasonable judgments as to the observed pattern and course of dealing in their customers' behavior by virtue of their interactions with their customers." Id. FINRA has noted that it views the term "regularly" as conveying the "prevailing or dominant pattern and course of the customer's behavior" and that, in making their determinations, broker-dealers may use the customer's history of transactions with the broker-dealer and any other relevant information of which the broker-dealer is aware, and also should be able to rely on the reasonable representations of their customers. Id.; see also SR-FINRA-2015-036, Partial Amendment No. 1 (filed January 13, 2016) and Partial Amendment No. 2 (filed March 21, 2016).

8.See FINRA Rule 6710(z) (defining "dollar roll" to mean "a simultaneous sale and purchase of an [agency MBS] . . . for different settlement dates, where the initial seller agrees to take delivery, upon settlement of the re-purchase transaction, of the same or substantially similar securities").

9."Round robin" trades are transactions resulting in equal and offsetting positions by one customer with two separate dealers for the purpose of eliminating a turnaround delivery obligation by the customer. See Rule 4210(e)(2)(H)(i)(i).

10.The term "registered clearing agency" means a clearing agency, as defined in Section 3(a)(23) of the Securities Exchange Act. FINRA Rule 4210(f)(2)(A).

11.To facilitate the amendment of existing MSFTAs to make them compliant with new FINRA Rule 4210, SIFMA has published a Form of Amendment to Master Securities Forward Transaction Agreement to Confirm with FINRA 4201 – February 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.